Glossary
Net asset value (NAV)
A fund's assets minus its liabilities, divided by its shares outstanding: the per-share value of what the fund holds.
Net asset value is the per-share worth of everything a fund owns, after subtracting what it owes. For a mutual fund it is the price at which every purchase and redemption happens. For exchange-traded and closed-end funds, which trade on an exchange at market prices, NAV is the yardstick for judging whether the market price is fair, too high or too low.
How it is calculated
Mutual funds usually strike NAV once a day after the close. Securities that did not trade, or that trade on foreign markets that closed hours earlier, may be valued using fair-value procedures.
NAV versus market price
- Mutual funds trade only at NAV, so there is no premium or discount.
- ETFs trade all day at market prices. Authorized participants can create or redeem ETF shares in large blocks, which keeps the price close to NAV for most liquid funds. Gaps can open for funds holding illiquid or foreign assets, especially in stressed markets.
- Closed-end funds have a fixed number of shares, so their prices often sit well above or below NAV, sometimes by 10% or more, for long periods.
A falling NAV does not by itself mean a fund lost money for holders: NAV also drops when the fund pays out dividends or capital gains distributions, which go to shareholders.